IDEAS home Printed from https://ideas.repec.org/a/kap/jculte/v47y2023i2d10.1007_s10824-022-09459-2.html
   My bibliography  Save this article

Empirical evidence of anchoring and loss aversion from art auctions

Author

Listed:
  • Kathryn Graddy

    (Brandeis University)

  • Lara Loewenstein

    (Federal Reserve Bank of Cleveland)

  • Jianping Mei

    (Cheung Kong Graduate School of Business)

  • Mike Moses

    (Beautiful Asset Advisors LLC)

  • Rachel A. J. Pownall

    (Maastricht University)

Abstract

We provide evidence for the behavioral biases of anchoring and loss aversion in paintings sold at auction. We find that anchoring is more important for items that are resold quickly and that the effect of loss aversion increases with the time that a painting is held. This evidence contributes significantly to the empirical evidence of the endowment effect: of increasing loss aversion with the length of holding. However, we do not find evidence that investors can take advantage of these behavioral biases.

Suggested Citation

  • Kathryn Graddy & Lara Loewenstein & Jianping Mei & Mike Moses & Rachel A. J. Pownall, 2023. "Empirical evidence of anchoring and loss aversion from art auctions," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 47(2), pages 279-301, June.
    • Handle: RePEc:kap:jculte:v:47:y:2023:i:2:d:10.1007_s10824-022-09459-2
    DOI: 10.1007/s10824-022-09459-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10824-022-09459-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10824-022-09459-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Orley Ashenfelter & Kathryn Graddy, 2011. "Sale Rates and Price Movements in Art Auctions," American Economic Review, American Economic Association, vol. 101(3), pages 212-216, May.
    2. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 73-106.
    3. Shunda, Nicholas, 2009. "Auctions with a buy price: The case of reference-dependent preferences," Games and Economic Behavior, Elsevier, vol. 67(2), pages 645-664, November.
    4. Davidson, Russell & Flachaire, Emmanuel, 2008. "The wild bootstrap, tamed at last," Journal of Econometrics, Elsevier, vol. 146(1), pages 162-169, September.
    5. Luc Renneboog & Christophe Spaenjers, 2013. "Buying Beauty: On Prices and Returns in the Art Market," Management Science, INFORMS, vol. 59(1), pages 36-53, February.
    6. Drew Fudenberg & David K. Levine & Zacharias Maniadis, 2012. "On the Robustness of Anchoring Effects in WTP and WTA Experiments," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 131-145, May.
    7. Goetzmann, William N, 1993. "Accounting for Taste: Art and the Financial Markets over Three Centuries," American Economic Review, American Economic Association, vol. 83(5), pages 1370-1376, December.
    8. Stephanie Rosenkranz & Patrick W. Schmitz, 2007. "Reserve Prices in Auctions as Reference Points," Economic Journal, Royal Economic Society, vol. 117(520), pages 637-653, April.
    9. Shlomo Benartzi & Richard H. Thaler, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 73-92.
    10. Casey Dougal & Joseph Engelberg & Christopher A. Parsons & Edward D. Van Wesep, 2015. "Anchoring on Credit Spreads," Journal of Finance, American Finance Association, vol. 70(3), pages 1039-1080, June.
    11. Ahmad, Husnain Fateh, 2015. "Endogenous price expectations as reference points in auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 46-63.
    12. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    13. Lyle Brenner & Yuval Rottenstreich & Sanjay Sood & Baler Bilgin, 2007. "On the Psychology of Loss Aversion: Possession, Valence, and Reversals of the Endowment Effect," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 34(3), pages 369-376, May.
    14. Beggs, Alan & Graddy, Kathryn, 2005. "Testing for Reference Dependence: An Application to the Art Market," CEPR Discussion Papers 4982, C.E.P.R. Discussion Papers.
    15. Bruno Jullien & Bernard Salanie, 2000. "Estimating Preferences under Risk: The Case of Racetrack Bettors," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 503-530, June.
    16. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    17. Alan Beggs & Kathryn Graddy, 2009. "Anchoring Effects: Evidence from Art Auctions," American Economic Review, American Economic Association, vol. 99(3), pages 1027-1039, June.
    18. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    19. Jianping Mei & Michael Moses, 2005. "Vested Interest and Biased Price Estimates: Evidence from an Auction Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2409-2435, October.
    20. Sheharyar Bokhari & David Geltner, 2011. "Loss Aversion and Anchoring in Commercial Real Estate Pricing: Empirical Evidence and Price Index Implications," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(4), pages 635-670, December.
    21. Pénasse, Julien & Renneboog, Luc & Spaenjers, Christophe, 2014. "Sentiment and art prices," Economics Letters, Elsevier, vol. 122(3), pages 432-434.
    22. Orley Ashenfelter & Kathryn Graddy, 2011. "Sale Rates and Price Movements in Art Auctions," American Economic Review, American Economic Association, vol. 101(3), pages 212-216, May.
    23. Mao-Wei Hung & Jr-Yan Wang, 2011. "Loss aversion and the term structure of interest rates," Applied Economics, Taylor & Francis Journals, vol. 43(29), pages 4623-4640.
    24. Flachaire, Emmanuel, 2005. "Bootstrapping heteroskedastic regression models: wild bootstrap vs. pairs bootstrap," Computational Statistics & Data Analysis, Elsevier, vol. 49(2), pages 361-376, April.
    25. De Silva, Dakshina G. & Pownall, Rachel A.J. & Wolk, Leonard, 2012. "Does the sun ‘shine’ on art prices?," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 167-178.
    26. Strahilevitz, Michal A & Loewenstein, George, 1998. "The Effect of Ownership History on the Valuation of Objects," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(3), pages 276-289, December.
    27. Julien Pénasse & Luc Renneboog & José A Scheinkman & Stijn Van Nieuwerburgh, 2021. "When a Master Dies: Speculation and Asset Float [Optimal financial crises]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3840-3879.
    28. Hsiao, Cheng, 1989. "Consistent estimation for some nonlinear errors-in-variables models," Journal of Econometrics, Elsevier, vol. 41(1), pages 159-185, May.
    29. A. Banerji & Neha Gupta, 2014. "Detection, Identification, and Estimation of Loss Aversion: Evidence from an Auction Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 91-133, February.
    30. Shefrin, Hersh & Statman, Meir, 1985. "The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-790, July.
    31. repec:pri:cepsud:214ashenfelter is not listed on IDEAS
    32. Jianping Mei & Michael Moses, 2002. "Art as an Investment and the Underperformance of Masterpieces," American Economic Review, American Economic Association, vol. 92(5), pages 1656-1668, December.
    33. Nicholas Barberis & Ming Huang & Tano Santos, 2001. "Prospect Theory and Asset Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 1-53.
    34. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
    35. Eric A. Greenleaf, 1995. "The Impact of Reference Price Effects on the Profitability of Price Promotions," Marketing Science, INFORMS, vol. 14(1), pages 82-104.
    36. Northcraft, Gregory B. & Neale, Margaret A., 1987. "Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 84-97, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Graddy, Kathryn & Pownall, Rachel A J & Loewenstein, Lara & Mei, Jianping & Moses, Mike, 2014. "Anchoring or Loss Aversion? Empirical Evidence from Art Auctions," CEPR Discussion Papers 10048, C.E.P.R. Discussion Papers.
    2. Kathryn Graddy & Lara Loewenstein & Jianping Mei & Mike Moses & Rachel Pownall, 2014. "Empirical Evidence of Anchoring and Loss Aversion from Art Auctions," Working Papers 73, Brandeis University, Department of Economics and International Business School, revised Apr 2015.
    3. Penasse, J.N.G. & Renneboog, L.D.R., 2014. "Bubbles and Trading Frenzies : Evidence from the Art Market," Other publications TiSEM bf0d8984-df7f-4f02-afc7-3, Tilburg University, School of Economics and Management.
    4. Spaenjers, Christophe & Goetzmann, William N. & Mamonova, Elena, 2015. "The economics of aesthetics and record prices for art since 1701," Explorations in Economic History, Elsevier, vol. 57(C), pages 79-94.
    5. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    6. Ma, Marshall Xiaoyin & Noussair, Charles N. & Renneboog, Luc, 2022. "Colors, Emotions, and the Auction Value of Paintings," European Economic Review, Elsevier, vol. 142(C).
    7. Eduard Marinov, 2017. "The 2017 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 117-159.
    8. Jakusch, Sven Thorsten, 2017. "On the applicability of maximum likelihood methods: From experimental to financial data," SAFE Working Paper Series 148, Leibniz Institute for Financial Research SAFE, revised 2017.
    9. Julien Pénasse & Luc Renneboog, 2022. "Speculative Trading and Bubbles: Evidence from the Art Market," Management Science, INFORMS, vol. 68(7), pages 4939-4963, July.
    10. Lukas, Moritz & Nöth, Markus, 2021. "Interest rate fixation periods and reference points," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 94(C).
    11. Li, Yan & Yang, Liyan, 2013. "Prospect theory, the disposition effect, and asset prices," Journal of Financial Economics, Elsevier, vol. 107(3), pages 715-739.
    12. Wang, Huijun & Yan, Jinghua & Yu, Jianfeng, 2017. "Reference-dependent preferences and the risk–return trade-off," Journal of Financial Economics, Elsevier, vol. 123(2), pages 395-414.
    13. Committee, Nobel Prize, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    14. Grinblatt, Mark & Han, Bing, 2005. "Prospect theory, mental accounting, and momentum," Journal of Financial Economics, Elsevier, vol. 78(2), pages 311-339, November.
    15. Peyman Khezr & Shabbir Ahmad, 2018. "Anchoring in the Housing Market: Evidence from Sydney," Discussion Papers Series 596, School of Economics, University of Queensland, Australia.
    16. Kyle, Albert S. & Ou-Yang, Hui & Xiong, Wei, 2006. "Prospect theory and liquidation decisions," Journal of Economic Theory, Elsevier, vol. 129(1), pages 273-288, July.
    17. Aubry, Mathieu & Kräussl, Roman & Manso, Gustavo & Spaenjers, Christophe, 2019. "Machine learning, human experts, and the valuation of real assets," CFS Working Paper Series 635, Center for Financial Studies (CFS).
    18. Jianping Mei & Michael Moses & Yi Zhou, 2023. "Residual variance and asset pricing in the art market," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 47(3), pages 513-545, September.
    19. Chang, Chuang-Chang & Chao, Ching-Hsiang & Yeh, Jin-Huei, 2016. "The role of buy-side anchoring bias: Evidence from the real estate market," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 34-58.
    20. Jianping Mei & Michael A. Moses & Zur B. Shapira & Lawrence J. White, 2010. "Loss Aversion? What Loss Aversion? Some Surprising Evidence from the Art Market," Working Papers 10-10, New York University, Leonard N. Stern School of Business, Department of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jculte:v:47:y:2023:i:2:d:10.1007_s10824-022-09459-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.